I have always been a huge advocate of using professional property management. Unless you are devoted full-time to the profession, you lack the systems and resources a property management company relies on to keep your properties maintained and full with happy residents who pay on time. That doesn't mean you should take a complete hands-off approach though. The most successful multifamily real estate investors I know are all active owners, or they have delegated the responsibilities to an experienced asset manager.
Engaged owners and asset managers know their properties, markets and comparable properties extremely well. They know the key indicators to measure the performance of their properties and the right questions to ask.
Here are just a few areas I recommend engaging in on a monthly basis...
SHOP YOUR NEARBY COMPARABLE PROPERTIES
When was the last time you shopped your competition? This short field trip might give you some excellent ideas and help you maximize your return. Target the properties within a mile radius of yours, and go visit them. Often times, I tell the property manager exactly why I'm there: "I own the property down the street, and I just wanted to stop by and see how things are going for you." More often then not, the property manager is happy to talk. Take a brochure, write down their market rates, and even ask to see a model or vacant unit. Take note of what upgrades they are doing, and what features they are charging extra for (e.g. upgraded appliances, first floor unit, unit by the pool, etc.). You will walk away knowing exactly how your property compares with others in the area.
WATCH YOUR OCCUPANCY, BUT MANAGE TO TOP-LINE REVENUE
Long-term tenants and 100% occupancy are not good. YES, YOU READ THAT RIGHT. Whenever I see either or both of these things, I know my property must be the best deal in town, and I am not pushing rents to the full market rate. Many owners are frightened when they have vacancy; and––to a certain extent––they should, because you can never collect revenue on lost time. However, there must be a balance, and I tend to guide my team to manage to top-line revenue.
I want to see revenue growing steadily. That means renewing leases at full market when they expire. If some residents choose not to renew, then it presents an opportunity to refresh the unit and maximize the top-line revenue of the property. Your focus then becomes how you shorten the make-ready and marketing time. This is a conversation you need to have with your property manager. Simply staying a month ahead of renewals, and scheduling contractors to begin working the day after move-out makes a huge difference. Also, don't hesitate to start marketing and taking applications prior to completing the make-ready.
EVALUATE YOUR MARKETING EFFECTIVENESS
Speaking of marketing, be careful you don't fall into the trap of overspending in this category. More marketing does not guarantee better results. Instead, know where your traffic is coming from and be highly targeted. If most of your leads are coming from a sign you have on the corner or in the window, why would you spend a bunch of money on expensive online listing services, or on colorful brochures? So, if they are not doing it already, ask your property manager to capture the lead source when they do showings. It's also good to gather feedback from the showing as well (e.g. what do you like/don't like about the property?). These insights will be extremely valuable going forward.
REVIEW YOUR FINANCIALS IN DETAIL EVERY MONTH
Your property manager should be giving you detailed reports every month, so make it a habit to study them and ask questions...
- Look at the rent roll to monitor upcoming lease expirations and renewal rates. Make sure your manager is being proactive about renewing leases at the market rate. And, if a lease has expired, make sure month-to-month fees are being collected.
- Review prior work orders to stay informed about the maintenance of your property. If the work orders are related to a make-ready, are expenses above and beyond normal wear-and-tear being billed against the prior resident's security deposit? Do you feel comfortable that deferred maintenance is not being overlooked?
- Heaven forbid you run across an accounting mistake, but I can assure you these do happen on occasion.
Consider the four things above as ice breakers and a starting point. Once you have a cadence and dialogue established with your management team, you will come up with your own list things to track.
And, one caveat for the engaged property owner...always be respectful of the chain of command at your management company. If your management company employs and delegates to an on-site property manager or leasing agent, resist the temptation to reach out to them directly. Don't bypass the senior leader or owner contact at your property management company. The system runs more smoothly when you follow the process.
PREFER TO BE HANDS OFF?
If the thought engaging at this level doesn't sound appealing, then you are a passive investor. You prefer to invest your money, then take a completely hands off approach. There is nothing wrong with that. In that case, seek out an experienced asset manager/sponsor. They know which knobs to turn and which switches to flip in order to maximize your return.
ABOUT THE AUTHOR
Mark Walker has been an active real estate investor since 2004, so he brought a wealth of knowledge with him when he founded Luxmana Investments in 2011. Though he started out as a part-time investor—holding a full-time job in high tech—he fully transitioned into his passion of real estate investing in 2015.
Mark now dedicates most of his time helping new and experienced investors build wealth through residential, multifamily and commercial real estate.
Learn more about Mark and Luxmana Investments at www.luxmana.com.